Mass. motorists skipping sales tax through Montana loophole

John Hilliard

Sunday

Jan 27, 2008 at 12:01 AMJan 27, 2008 at 2:55 PM

At the Flagg RV Center in West Boylston, Mass., salespeople sometimes meet customers who are different from the others eyeing the scores of motor homes in the dealer's lot. These buyers stand out because, unlike fellow Massachusetts residents, they can purchase vehicles costing $100,000 or more without paying a dime in sales tax.

At the Flagg RV Center in West Boylston, Mass., salespeople sometimes meet customers who are different from the others eyeing the scores of motor homes in the dealer's lot.

These buyers stand out because, unlike fellow Massachusetts residents, they can purchase vehicles costing $100,000 or more without paying a dime in sales tax.

The buyers avoid the tax by taking advantage of Montana's laws governing corporations and motor vehicles. Using those laws, Massachusetts residents can buy a vehicle through a Montana-based limited liability company - or LLC - and registering it in that state.

Dealer employees see it about once a month, said Brigitte Flagg, the dealer's general manager. The dealer doesn't encourage customers to use the Montana legal cover, she added.

The process works because, unlike Massachusetts and other states, Montana will register vehicles not garaged within its borders.

Montana-registered vehicles don't need annual inspections, and buying a vehicle through a Montana company avoids a sales tax because the state has none, said Michael Willing, owner of Deer Creek Corporate Services in Helena, Mont.

The company offers out-of-state customers the chance to set up their own Montana-based companies in order to save money when buying a vehicle. They've helped customers register RVs, cars, helicopters, planes and other vehicles.

"Most people are doing this because they don't want to pay sales tax," said Willing, whose company belongs to the local Better Business Bureau. "Of course, some states are not elated about this, because it does take sales tax from that state."

For a fee, Willing's company handles the paperwork for establishing a limited liability corporation with the Montana secretary of state. Deer Creek will also act as the physical Montana address for the LLC and forward mail to their out-of-state customers.

Once the LLC is established, a customer can purchase a vehicle on behalf of that organization in their home state. Because the LLC is bound by Montana law, and the vehicle legally belongs to that LLC, a customer's home state can't charge sales tax on the purchase, said Willing, whose company can also file the paperwork for a Montana registration and plates.

Registration fees are also paid to Montana, and owners can get a permanent registration for a vehicle after it turns 11 years old. It's not a free ride: Montana does require insurance, and counties can levy a county option tax annually based on the value of the vehicle.

But Montana collects registration and fees for vehicles that will rarely, if ever, roll on its roadways.

"It's too lucrative for our counties" in Montana, said Willing, whose company handles about 700 to 1,000 customers a year.

But the process has earned the ire of some Montana officials, including Dean Roberts, administrator for Montana's motor vehicle division.

"This is upsetting the laws of the other states. We don't like the practice," Roberts said. "I don't like it from an ethics point of view."

States such as California actively investigate whether a resident is using Montana's laws to skip paying sales tax, and Montana officials will cooperate in those efforts, he said. But curbing the practice is hard, he said.

A few years ago, Montana LLC filings included the home addresses of a company's principal officers, enabling officials to track down people using Montana's law to register vehicles. But that law was changed, making those addresses private.

Now, public records for LLCs are left with only a company's official address, which can be as simple as an attorney's office, Roberts said. And the state Legislature quashed a push to change those laws, he said.

He noted such registrations could pose a security risk, because officials can't publicly track down the owners of vehicles traveling in the state, including large semi-trucks.

"It's a growing problem for the other states, there's no question about that," Roberts said.

Deer Creek's Willing advertises on Google and with Hemmings Motor News, plus he relies on referrals. He said he has eight or nine Massachusetts customers and recently gained new ones in New York and Florida.

"I don't think a lot of people on the East Coast know this is a possibility," Willing said.

With the right vehicle, the savings can be substantial.

The buyer of a new $150,000 motor home, said Robert Bliss, director of communications for the Massachusetts Department of Revenue, would avoid paying $7,500 in sales tax, plus the state would lose the first year's excise tax of nearly $3,400.

"That's a lot of dough for a city or town," said Bliss, who criticized Montana for allowing the practice. "They're cherry-picking when it comes to registering a motor vehicle they may want to be the Cayman Islands of vehicles."

In the past, Massachusetts has dealt with drivers registering cars in sales-tax-free New Hampshire.

Ann Dufresne, director of communications for the Massachusetts Registry of Motor Vehicles, warned drivers would face stiff penalties for trying to avoid the state's sales and excise taxes and other fees.

A person who drives a car in Massachusetts for more than 30 days is required to register and insure it here and pay the sales tax, she said. Residents who don't register their vehicles here could face more than $6,000 in fines and potentially have their license suspended, according to state law.

The state relies on tipsters and police to alert officials about out-of-state registrations through the RMV's I-Pay-Tax program at www.mass.gov/rmv/ipaytax/index.htm. She said residents can fill out a form identifying suspected vehicles.

"It's somebody skirting the law. They're not paying their fair share and it irks people (who are) paying their fair share," Dufresne said.

Daily News writer John Hilliard can be reached at 508-626-4449 or jhilliar@cnc.com.

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